Realty investors left holding their apartments as demand sinks

The vicious downward spiral in demand for real estate, and unrealistically high prices, have forced the hands of many investors: they are having to take possession of their properties, and getting them registered.

Typically, an investor flat, bought at the commencement of a project, is not registered with the government but directly sold off to retail buyers once the project is completed. However, as individual buyers are postponing or cancelling their purchase decisions, the investors are left holding the baby.

“The investor can sell the apartment at lower prices, but developers don’t let them do that as it would affect the selling price of all the unsold stock in the building/project,” said Sunil Bajaj, a real estate consultant. “So either investors can sell to other investors, to the developer — or register the flat and take possession.”

Last December, property registrations in Mumbai jumped by 44% against the November figures. This, analysts say, was a direct result this phenomenon of investors deciding to retain their apartments and registering them.

“I had bought four one-bedroom apartments in an upcoming project in North-west Mumbai for R40 lakh each in 2009 and wanted to exit last year,” said an investor who got two of his apartments registered in December. “Now the developer is asking for R75 lakh per flat, but customers are unwilling to pay that price.” This man plans to register his remaining two flats by March-end.

According to a report by Sachin Dave, a real estate consultancy, investors buy more than 50% of the total apartments in metros.

Investors typically earned around 100% returns within 3-4 years in real estate earlier. Now, returns have hit a nadir and exit options are also closing. Industry experts say it is the high prices that are keeping customers away.

A recent report by Knight Frank and Indicus Analytics, a research firm, said that only 22% Mumbai apartments and 28% in National Capital Region had price tags below Rs 35 lakh.